Upgrade Follows Price Drop On Pinnacle Financial Partners

• Shares of Pinnacle Financial Partners PNFP have declined by about 14 percent since the peak levels achieved in July.
• Jefferson Harralson of Keefe, Bruyette & Woods has upgraded the rating on Pinnacle Financial from Market Perform to Outperform.
• Harralson believes that there is 14 percent upside potential to the stock.

According to Harralson, the company “has a key strength in taking away market share and now has two new rich playgrounds,” in the form of Memphis and Chattanooga.

This, along with the Bankers HealthCare Group acquisition and Pinnacle Financial’s core organic growth are likely to drive EPS growth of 27 percent for 2015.

Harralson also expects the company’s recent M&A activity to drive EPS accretion of 15 percent in 2016 and 20 percent in 2017, in addition to Pinnacle Financial’s core growth of over 12 percent.

“Our estimates are a bit below the Street as we layer in some conservatism on timing with two deals closing at roughly at the same time. Still, we believe the growth will continue and the merger synergies will materialize,” Harralson explained.

In addition, the company achieved strong ROA of 1.44 percent in Q2, higher than the management’s longer term ROA goal of 1.20-1.40 percent. Harralson expects the ROA to stay at the higher end or above this range in the foreseeable future.

“PNFP still has less future earnings at risk versus highly asset sensitive peers under a "lower for longer" environment,” the Keefe, Bruyette & Woods report added.